As tax season approaches, low to middle-income workers should explore the Saver’s Credit, a little-known tax credit from the Internal Revenue Service that could make saving for retirement more affordable, according to the Transamerica Center for Retirement Studies.
“The Saver’s Credit is particularly great because it offers many workers an added incentive to save for their future retirement, while potentially lowering their tax bill today,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies.
Individuals qualify for the Saver’s Credit if they earned up to $28,250 in 2011 or $28,750 in 2012. Heads of household are eligible if they earned up to $42,375 in 2011 or $43,125 in 2012. For those married and filing jointly, the income limit is $56,500 in 2011 and $57,500 in 2012. All income requirements are based on adjusted gross income.
Depending on your filing status and income level, you may qualify for a nonrefundable credit of up to $1,000 (or $2,000 if filing jointly) on your federal income taxes for that year when you contribute to a 401(k), 403(b), 457, 501(c)(18)(D), SEP or SIMPLE plan or an IRA, according to Transamerica.
To receive the credit, make sure you enroll in your company’s retirement plan or you open a traditional or Roth IRA. For every dollar you contribute to a qualified plan, up to the lesser of the limits permitted by an employer-sponsored plan or the IRS, you defer that amount from your current overall taxable income on your federal tax returns.